Components of GDP





I was curious about any observable trends in the components of GDP so I grabbed some data from FRED.  I used real, billions of chained 2009 dollars, quarterly, SA data for all four sets, to be consistent.  The titles of the series are at the end of the post.

 

 



It appears consumption is on the rise, as well as investment, at least as a percentages of real GDP.  Surprisingly, government spending is actually decreasing as a percentage of real GDP.  The popular opinion seems to view it the other way around.

This data and another paper got me thinking about the marginal efficiency of capital, what levels of C, I, G, and NX we need to reach potential output, and how potential output is calculated.

If the marginal efficiency of capital (MEC) is defined as the expected rate of return over costs (Skidelsky, The Relevance of Keynes, 2011) then in order for investment to occur, MEC>return from the prevailing market rate of interest. 

It appears MEC>return from market rate because investment is increasing as a percentage of GDP.

However, just because I is increasing does not mean the rate of growth of Investment is as high as we need it to be to be a full employment.  This means we could lower the market rate of interest (can't) or stimulate consumption (with perhaps redistributive policies since the market rate of interest can't be adjusted) or have the government spend money (which by historical standards if I have the graph right, isn't that crazy of an idea).

Much of the "action" rests on the idea of potential output.  Because if we are below potential, we can take action to reach potential.  So what's the magic formula for potential output? 

Further questions to explore: potential output => full employment? full employment changes with actual output? full employment = unemployment of 25%, is that ok?

Data series from FRED:

Real Personal Consumption Expenditures (PCECC96), Billions of Chained 2009 Dollars, Quarterly, Seasonally Adjusted Annual Rate

Real Gross Private Domestic Investment, 3 decimal (GPDIC96), Billions of Chained 2009 Dollars, Quarterly, Seasonally Adjusted Annual Rate

Real Government Consumption Expenditures & Gross Investment (GCEC1), Billions of Chained 2009 Dollars, Quarterly, Seasonally Adjusted Annual Rate

Real Gross Domestic Product (GDPC1), Billions of Chained 2009 Dollars, Quarterly, Seasonally Adjusted Annual Rate